List of Chart and Market Requirements Necessary for Success
New and novice traders learn a few Candlestick Patterns and rush out to trade, believing this is all they need to be successful in trading stocks. They are then often surprised to see the stock retrace and lose money.
Below is a candlestick chart example of how Engulfing White Candlestick Patterns may look like a great entry but fail. See the candlestick that just rises above Resistance, which is indicated by the red line. However, even though the next day is a white candlestick, this Engulfing White fails to run and, as can be seen in the following days, would cause a small loss for most traders with this entry.
The problem with this entry signal was that the stock started to run up 8 days prior to its formation, indicated by the green arrow as to where the run began. In addition, another problem is that the Engulfing White has moved slightly above a strong Resistance level.
The combination of a run already underway as well as it easing just slightly above the high of Resistance which consumed the point gain potential of the Engulfing White indicated this was not a good entry Engulfing White Candlestick. The gap down was triggered Professional Trader profit taking.
Learning to find Candlestick Patterns that are ideal and will move in a strong run or trend that will provide excellent and consistent Return on Investment (ROI) for that trade requires more than just the Candlestick Pattern identification.
List of requirements for successfully trading Engulfing White Candlestick Patterns:
1. Where the Engulfing White Candlestick Pattern Forms
Where the Candlestick Pattern forms is crucial to whether the stock will run up as expected. Not every entry signal has ideal setups. Not every time that a particular Candlestick Pattern forms is the stock going to run up.
Martha Stokes CMT
TechniTrader technical analysis using a FreeStockCharts chart, courtesy of Worden Bros. and FreeStockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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